Inventory Valuation Methods Every Business Should Know
4 min read · 4 Jun 2026
FIFO, weighted average and real-time stock valuation — and how the right reports save you money at year-end.
Why valuation matters
The value you assign to your closing stock directly affects your reported profit and the tax you pay. Get it wrong and you either overpay tax or misstate your financials. That's why a consistent, correct valuation method matters.
FIFO (First In, First Out)
FIFO assumes the oldest stock is sold first. In times of rising prices, it leaves newer, higher-cost stock on your books — generally showing higher profit. It mirrors how most physical goods actually move, especially perishables.
Weighted Average Cost
This method values all units at the average cost of stock available. It smooths out price fluctuations and is simpler to maintain when you buy the same item at different prices frequently.
Track it in real time
Whichever method you use, doing it manually at year-end is painful. Inventory software values stock continuously, tracks it across warehouses, and produces valuation reports on demand — so closing stock is always ready for your accountant.
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Explore Betterwork BooksFAQs
Can I switch valuation methods?
You should apply a method consistently; changing it frequently distorts comparisons and can raise questions during audits. Pick the one that fits your business and stick with it.
Does GST care about my valuation method?
Valuation mainly affects income tax and financial reporting. For GST, accurate HSN-wise records and tax on each transaction matter more.
